Global Insurance IT Spending To Speed Up
CIOs are increasing their IT budgets to drive a new set of IT priorities as insurance market conditions begins to improve, says research firm Ovum. In mature markets, there is a focus on improving operational efficiency and organisational flexibility, while in developing markets, close attention is being paid to expanding core platforms and infrastructure to support growth. These factors will drive global insurance IT spending to over $104bn by 2018, says the research firm.
The sharp decline of new business across all life insurance markets due to the credit crunch led many insurers to significantly cut their IT budgets. However, Ovum notes accelerating year-on-year growth in 2013 has caused life insurers to move from cost-cutting to investment in strategic IT projects. This is reflected in a predicted growth of IT budgets of 5.4% CAGR between 2014 and 2018, reaching a global value of nearly $48bn. In global non-life insurance markets, Ovum forecasts IT spending will grow at 4.6% CAGR from 2014, with overall budgets approaching $58bn by 2018.
Charles Juniper senior analyst, financial services technology, Ovum notes that one of the key issues driving insurance IT spending globally is the irreversible shift in consumer power. “Customers now demand ‘anywhere, anytime’ interaction from their insurers and this is reflected in the priorities of the providers. This is critical for non-life insurers, particularly in the North American and Asia-Pacific markets, with both focusing on advancing the functionality of their digital channels. Between 2014 and 2018, this will drive global IT spending among non-life insurers up 3.8% CAGR to $22bn in North America and up 6% CAGR to $10bn in Asia-Pacific,” he says.
The most significant growth in life insurance spend will occur in Asia-Pacific, forecast to grow at 7.9% CAGR between 2014 and 2018, rising to $13.5bn. This expansion is caused by life insurers needing to build-out core systems in order to cope with the strong growth opportunities in the region.
“The predicted strong growth in Asia-Pacific over the next four years will see it overtake Europe, becoming the second largest-regional market. This is part of an ongoing trend, with Asia-Pacific displaying strong signs of growth, in contrast to the focus on customer retention in mature markets,” he Juniper.
In terms of life insurance, the regional markets have considerably different focuses. In Europe, life insurance IT spending is set to grow at 3.8% CAGR from 2014, exceeding $14bn by 2018. This is driven by a focus on customer retention, with online portals being key, as well as updating legacy systems, vital in improving operational efficiency and reducing costs. This differs from North America, where life insurers have to comply with emerging regulations, leading to investment in enterprise risk management (ERM) and enhanced management information systems (MIS). Ovum predicts that this will cause life insurance IT spend in the region to grow at 4.9% CAGR, reaching nearly $16bn by 2018.
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